Some RE markets seeing tough competition on buy side

Q: We recently moved to Las Vegas and expected to have a very easy time finding a home at a great bargain. Our budget is up to $260,000, and we're looking for a three- to four-bedroom home with a pool.

In the last month, we have lost out on four homes on which we have submitted offers at or above asking price. We have a letter of pre-qualification on a VA loan, and ask for no closing costs from the seller. Some of these homes are regular sales, and some are bank-owned.

What in the world is going on here? Initially, we weren't even sure if buying in Las Vegas was a wise investment. It seems like cash investors are gobbling up all available properties, many times sight unseen. Any advice would be greatly appreciated!

A: Welcome to the new world of bottom-feeding real estate. We have been hearing stories like yours from various parts of the country.

Keep in mind that many communities in Las Vegas have thousands of homes that were built within the last five or six years that are now selling for about half of what they once sold. If you were to build a new home in Las Vegas, it might cost you more than the $260,000 you are planning on spending to buy that home with three or four bedrooms.

In many markets, investors have come to realize that they can buy a home for less than what it would cost to build one just like it. If they buy it now, they can rent the home at a price that will cover the cost of the mortgage, real estate taxes, insurance and some other maintenance expenses. It's that no-brainer investment mentality that has real estate investors big and small coming out of the woodwork.

If you find yourself bidding full price on homes in communities like these -- and losing out to other buyers -- you may have found the bottom of the market in that community. If you know that you're competing against investors that are willing to pay cash, and that sellers are looking for contracts that don't have conditions or contingencies for issues like financing or home inspection, you might have to either bid more for the home or waive the contingencies on your purchase contract.

While you have indicated that you are prequalified for your loan, you may want to take that a step further and get yourself preapproved. When you get preapproved, you actually apply for the loan, take all the steps needed to get a loan except that you have not found a home and don't have a contract to buy a home. The lender has committed, however, to give you a loan pending a clean title report for the home and an acceptable appraisal for the home.

If you buy a home without a financing contingency, you risk that the home doesn't appraise out in value and that the lender will not give you the loan. In that case, you might still be on the hook to buy the property, even if you can't get financing.

Most of the time, if a lender appraises a home and the appraisal comes in a less than the purchase price listed on the contract, you can still buy the home, but the lender will only lend you money on the basis of the appraisal.

That is to say, if you and the seller agree to a home sale price of $275,000 and you need to put 20 percent down on the home, and the appraisal comes in at $260,000, the lender will only give you a loan of 80 percent of the appraised price, or $208,000 -- not $220,000. You will have to come up with the missing $12,000 dollars to close the deal. If you prepare in advance and have money set aside for the purchase, you might be able to compete in the purchase of a home with investors.

Finally, if you are applying for a Veterans Administration loan, you should sit down with your mortgage lender to plan ways that you can make competitive bids in your market.

Keep us posted.

(Ilyce R. Glink's latest book is "Buy, Close, Move In!" Samuel J. Tamkin is a Chicago-based real estate attorney. If you have questions, you can call Ilyce's radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce and Sam through her Web site, http://www.thinkglink.com.)